Understanding Option Abbreviations

Option values are expressed in abbreviated form, both in listings and in communication between brokers and customers (or between online brokerage services and customers). The abbreviated expressions in the options market go beyond current premium. Both expiration month and striking price are expressed in shorthand form as well. For example, an October option with a striking price of 35 per share is referred to as an OCT 35 option, and a January option with a 50 striking price is called a JAN 50. Like the premium value, striking price is expressed without dollar signs. The complete option description must include all four terms plus current premium: underlying stock, expiration month, striking price, and type of option (call or put).

The terms, remember, must all be present to distinguish one option from another. In the following example, the single expression gives you the underlying stock, expiration month, striking price, type of option, and current premium. The Wal-Mart call expiring January 2008 with a striking price of 50 was valued at 2.70 (or $270). This option is fully described and distinguished as:

Wal-Mart JAN 08 $50 Call at 2.70

When you call a broker on the telephone or log onto a web site and place a trade, an additional coding system is used to specify the expiration month and striking price, and to distinguish calls from puts. This helps to avoid misunderstandings and to classify options properly. A large number of options can exist on a single stock, so the coding system used for trading purposes is very helpful and efficient. After trading options actively, you might memorize these codes; however, it also helps to make a chart and keep it handy for quick reference. Figure summarizes the symbols used for buying and selling listed options. You will need these for entering correct option designations online or, if you trade by telephone, for communication with a broker. [caption id="attachment_12448" align="aligncenter" width="355"] Option trading symbols.[/caption] The expiration month is always expressed first, followed immediately by the striking price. Note that striking prices of 5, 105, and 205 have identical symbols. This works because the market value of the underlying stock quickly determines which range of pricing applies for listed options. The situation for LEAPS options is more complex because price ranges can spread out over a wider range over three years, and symbols also need to distinguish between different years, and not just months. The industry is struggling with the problem of how to reduce LEAPS options to a logical and consistent system of symbols.

Example

Abbreviated Form: You want to trade in calls with September expiration and 60 striking price. The symbols to use are I for the month (September is the ninth month and I is the ninth letter); and L for the striking price. In this case, a call would have the designation IL and a September 60 put would be coded as UL.

The complete option quote also includes the abbreviated symbol for the underlying stock. Every listed stock on every stock exchange has a unique abbreviation that distinguishes it from all other listed stocks. Wal-Mart, for example, is abbreviated WMT. So a Wal-Mart option code consists of two sections. First is the symbol for the stock (in this case, three letters). This is followed by a period and then a two-letter code indicating month and striking price. Distinction between call and put is part of the month code. A Wal-Mart September call with a striking price of 60 is designated as WMT.IL A put for the same striking price and month is designated as: WMT.UL.

Smart Investor Tip

If you know the name of the company but not its abbreviated symbol, most online sites offering free quotations also offer cross-reference services. One example is found at http://finance.lycos.comâ

By Michael C. Thomsett

Michael Thomsett is a British-born American author who has written over 75 books covering investing, business and real estate topics.